Selling U.S. Property as a Foreign Seller - What You Need to Know About FIRPTA

What Is FIRPTA? FIRPTA stands for the Foreign Investment in Real Property Tax Act. The law requires buyers of U.S. real estate from foreign sellers to withhold a portion of the sales price and send the witholding as prepayment of the seller's potential taxes. Instead of waiting until tax season, the IRS requires that part of the sale proceeds be withheld at closing. Does FIRPTA apply to you? FIRPTA applies if you are selling U.S. real estate, such as a home, condo, land, or commercial building, and are any of the following: A non-U.S. Citizen A non-resident alien A foreign corporation A foreign partnership A foreign trust or estate How much is withheld? The default witholding amount is 15% of the total sale price. However, there are cases where the withholding amount may be 10% of the total sale price. Who does the withholding? The buyer is responsible for determining if withholding is due. If withholding is due, the escrow company may agree to collect the appropriate IRS forms and remit the payment on behalf of the buyer and seller with appropriate instructions. NOTE: Escrow companies are not authorized to provide tax advice. However, they may agree to collect the appropriate IRS forms pursuant to written instructions. For guidance specific to your situation, please consult a qualified U.S. tax professional before proceeding with any property sale. Can you reduce or avoid the withholding? Yes, in some cases. One of the most common exemptions is as follows: You (the transferee) acquire the property for use as a residence and the amount realized (sales price) is not more than $300,000. You or a member of your family must have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer. When counting the number of days the property is used, do not count the days the property will be vacant. For this exception, the transferee must be an individual. What happens after the sale? The withheld funds are sent to the IRS with the appropriate IRS forms, completed by the buyer as required. The IRS will send you a form confirming the amount they received (Form 8288-A) You can claim a refund or apply the amount toward taxes when you file your U.S. tax return by submitting the stamped 8288-A form that you, the seller, received from the IRS. Important: If you overpaid, you may get money back, but only by filing a return. What should you do as a foreign seller? Consult a qualified tax advisor early in the process, as FIRPTA can be complex and may have significant implications. We encourage you to talk with a CPA and then talk directly to your buyer about FIRPTA if you are not a U.S. person for tax purposes. Do not plan on receiving the full sale proceeds at closing.  Our team at Chicago Title is here to ensure a smooth transaction! Download a copy of this article

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